Modeling dependence between error components of the stochastic frontier model using copula: Application to intercrop coffee production in Northern Thailand

© 2015 Elsevier Inc. In the standard stochastic frontier model, the two-sided error term V and the one-sided technical inefficiency error term W are assumed to be independent. In this paper, we relax this assumption by modeling the dependence between V and W using copulas. Nine copula families are c...

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Main Authors: Aree Wiboonpongse, Jianxu Liu, Songsak Sriboonchitta, Thierry Denoeux
Format: Journal
Published: 2018
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http://cmuir.cmu.ac.th/jspui/handle/6653943832/44743
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Institution: Chiang Mai University
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spelling th-cmuir.6653943832-447432018-04-25T07:56:09Z Modeling dependence between error components of the stochastic frontier model using copula: Application to intercrop coffee production in Northern Thailand Aree Wiboonpongse Jianxu Liu Songsak Sriboonchitta Thierry Denoeux Agricultural and Biological Sciences © 2015 Elsevier Inc. In the standard stochastic frontier model, the two-sided error term V and the one-sided technical inefficiency error term W are assumed to be independent. In this paper, we relax this assumption by modeling the dependence between V and W using copulas. Nine copula families are considered and their parameters are estimated using maximum simulated likelihood. The best model is then selected using the AIC or BIC criteria. This methodology was applied to coffee production data from Northern Thailand. For these data, the best model was the one based on the Clayton copula. The main finding of this study is that the dependence between V and W is significant and cannot be ignored. In particular, the standard stochastic frontier model with independence assumption grossly overestimated the technical efficiency of coffee production. These results call for a reappraisal of previous production efficiency studies using the SFM with independence assumption, which may occasionally lead to overoptimistic conclusions. 2018-01-24T04:47:23Z 2018-01-24T04:47:23Z 2015-01-01 Journal 0888613X 2-s2.0-84941316997 10.1016/j.ijar.2015.04.001 https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=84941316997&origin=inward http://cmuir.cmu.ac.th/jspui/handle/6653943832/44743
institution Chiang Mai University
building Chiang Mai University Library
country Thailand
collection CMU Intellectual Repository
topic Agricultural and Biological Sciences
spellingShingle Agricultural and Biological Sciences
Aree Wiboonpongse
Jianxu Liu
Songsak Sriboonchitta
Thierry Denoeux
Modeling dependence between error components of the stochastic frontier model using copula: Application to intercrop coffee production in Northern Thailand
description © 2015 Elsevier Inc. In the standard stochastic frontier model, the two-sided error term V and the one-sided technical inefficiency error term W are assumed to be independent. In this paper, we relax this assumption by modeling the dependence between V and W using copulas. Nine copula families are considered and their parameters are estimated using maximum simulated likelihood. The best model is then selected using the AIC or BIC criteria. This methodology was applied to coffee production data from Northern Thailand. For these data, the best model was the one based on the Clayton copula. The main finding of this study is that the dependence between V and W is significant and cannot be ignored. In particular, the standard stochastic frontier model with independence assumption grossly overestimated the technical efficiency of coffee production. These results call for a reappraisal of previous production efficiency studies using the SFM with independence assumption, which may occasionally lead to overoptimistic conclusions.
format Journal
author Aree Wiboonpongse
Jianxu Liu
Songsak Sriboonchitta
Thierry Denoeux
author_facet Aree Wiboonpongse
Jianxu Liu
Songsak Sriboonchitta
Thierry Denoeux
author_sort Aree Wiboonpongse
title Modeling dependence between error components of the stochastic frontier model using copula: Application to intercrop coffee production in Northern Thailand
title_short Modeling dependence between error components of the stochastic frontier model using copula: Application to intercrop coffee production in Northern Thailand
title_full Modeling dependence between error components of the stochastic frontier model using copula: Application to intercrop coffee production in Northern Thailand
title_fullStr Modeling dependence between error components of the stochastic frontier model using copula: Application to intercrop coffee production in Northern Thailand
title_full_unstemmed Modeling dependence between error components of the stochastic frontier model using copula: Application to intercrop coffee production in Northern Thailand
title_sort modeling dependence between error components of the stochastic frontier model using copula: application to intercrop coffee production in northern thailand
publishDate 2018
url https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=84941316997&origin=inward
http://cmuir.cmu.ac.th/jspui/handle/6653943832/44743
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